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T .C . Memo . 2010-184

UNITED STATES TAX COUR T

MYRTIS STEWART, Petitioner v .

COMMISSIONER OF INTERNAL REVENUE, Responden t

Docket No .

10376-08 .

Filed August

16, 2010 .

Myrtis Stewart, pro se .

Shawna A . Early and Robert A . Baxer , for' respondent .

MEMORANDUM FINDINGS OF FACT AND OPINIO N

VASQUEZ,

Judge : For 2004 and 2005 respondent determine d

deficiencies in petitioner's Federal income taxes and sectio n

6662(a)' accuracy-related penalties as follows :

1 Unless otherwise indicated, all section references are to

the Internal Revenue Code (Code) in effect for the years in

issue, and all Rule references are to the Tax Court Rules o f

(continued . . . )

SERVED AUG 16 2010

Year

Deficiency

Penalty

Sec . 6662(a )

2004

2005

$9,240

12,447

$1,848 .0 0

2,489 .4 0

The issues for decision are whether petitioner is :

(1) Entitled to deductions for losses of $25,000 for rental

,expenses

claimed on Schedule E, Supplemental Income and Loss, for

each year ; (2) entitled to deductions for theft losses of $12,093

and $23,525 .75 claimed on Schedules A, Itemized Deductions, fo r

2004 and 2005, respectively ; (3) entitled to carryover losses of

$1,521 .13 and $1,521 for 2004 and 2005, respectively ; and (4)

liable for the section 6662(a) accuracy-related penalties .

FINDINGS OF FAC T

Some of the facts have been stipulated and are so found .

The stipulation of facts and the . attached exhibits ar e

incorporated herein by this reference . Petitioner resided in New

1`York when the petition was filed .

Petitioner has worked for the Internal Revenue Service (IRS )

as an international examiner ,

i .e ., . a revenue agent, for over 21

years, including 2004 and 2005 . Through her work, which include s

examining tax returns, she has acquired a general knowledge of

the Federal income tax laws and the substantiation requirements

of the Code and the regulations thereunder . She also made

R ; '( . . . .continued)

Practice and Procedure .

3 several business investments before or during 2004 and 2005

(discussed infra ) .

I .,: 116 Highland Lake (Highland Lake property), Highland, N .Y .

and 112 .Hillside (Hillside property), Barryville, N .Y .

Backgroun d

Petitioner and Mary Anastasio (Ms . Anastasio) invested i n

several properties together . They acquired the Hillside property

sometime before the years in issue . The Hillside property covers

4 to 5 acres of land and has a New England style double Cape Cod

house with an adjoining garage . Petitioner used the Hillsid e

property as her. headquarters . for the management-of her real

estate .

Petitioner and Ms . Anastasio purchased the Highland Lake

property in or around 1995 for about $200,000 . with a $25,000

downpayment . Petitioner-paid-$12,500 of the downpayment .

According to petitioner, Ms . Anastasio acquired the Highland Lake

property in her name because petitioner,2 an African American ,

was not "able to purchase this property * * * in this town ." The

Highland Lake property is a 22-room Victorian style house with a

wraparound porch, which petitioner and Ms . Anastasio renovated .

They purchased it because they-planned to operate a . bed and

breakfast out of the-house . But they sometimes rented it out .

2 Petitioner has purchased several properties in her name

or in a coinvestor's name .

- 4 A first mortgage on the Highland Lake property of about

x'$100,000 was held by First National Bank of Jeffersonville (FNB) ,

a second mortgage of about $100,000 was held by the seller of

kl rand

{

the Highland Lake property . Petitioner and Ms . Anastasio each

,made mortgage payments of $788 .623 per month until Ms . Anastasio

became ill in 2000 and could not work . Thereafter, petitioner

paid both mortgages .

Petitioner used both properties to store her collectibles .

Collectibles Kept at the Highland Lake and Hillside

Properties

Stamps, Coins, and Currency Sheet s

Petitioner has been collecting stamps and coins for over 5 0

years . As a young child she started collecting stamps and

Lincoln wheat pennies, Indian head pennies, and buffalo nickels .

In her teen years she started buying uncirculated and proof coins

ifrom the Mint . In her twenties she started buying coins and .

J!proof coins at coin shows and from coin shops . She usually ,

purchased stamps at trade shows or stamp shops .

She recorded her

, ,purchases in books (inventory records) .

Petitioner accumulated a large coin collection : she had

'rolls of coins, unopened bags of-Mint nickels and dimes, and

uncut currency sheets of various denominations, including a

3 The mortgage payments amounted to $1,577 .23 per mont h

!($777 .67 and $799 .56 for the first and second mortgage,

respectively) ; $788 .62 represents their equal share of both

payments .

- 5 Hawaiian dollar bill . . She kept the less valuable coins at her

Manhattan-apartment and,kept the more valuable coins at her

Highland Lake and Hillside properties . . She stored the coins in

closets in plastic :. .containers that were on rollers like toolboxes

at her Highland Lake property . At the Hillside property,

petitioner stored her coins in a glass . curio cabinet and in a ..

.glass display cabinet with-some .stamps,on a wall in her library .

2 .

Book s

Petitioner also collected books for her libraries-at the

Highland Lake and Hillside properties . She purchased a set of 20

books on financial rating services with,yearly updates for her

professional library at the Highland Lake property and entire

collections of books from auctions for her library at the

Hillside property .

3 .

Artwor k

Petitioner also collected art . Specifically, she owned a 2by 3-foot painting that depicts Custer's Last Stand at the Battle

of the Little Bighorn in 1876 and was signed by the artist . She

kept this painting at the Hillside property .

Falling Out and Theft s

Petitioner and Ms . Anastasio's business . relationship

fragmented and eventually, in or around-2004, petitioner stopped

doing business with Ms . Anastasio .

- 6 -

Ms . Anastasio filed for bankruptcy and allowed the Highlan d

Lake property to go into foreclosure . Petitioner filed a notice

1of pendency4 for the Highland Lake property in Ms . Anastasio' s

bankruptcy proceeding because Ms . Anastasio allegedly did not

;,:comply with the terms of a settlement agreement and becaus e

`p petitioner wanted to protect .her interest in the Highland Lak e

I property . Ms . Anastasio sold the Highland Lake property in 200 1

'or 2002 without petitioner's knowledge . Petitioner did no t

.receive any proceeds from the sale .

Petitioner's collectibles allegedly were stolen from th e

Hillside and Highland Park properties .at some point . She

discovered the thefts from the Hillside and Highland Par k

properties in 2004 and 2005,, respectively, when she went to the

~F ;'properties and discovered that the items were gone . Neithe r

property had been broken into or forcibly entered .- The items

.were purportedly stolen by an acquaintance of Ms . Anastasio to

whom Ms . Anastasio had given the keys to both properties .

' ;Petitioner filed police reports in New Jersey for the thefts . 5

A notice of p endenc y i n f orms o th ers ab out a l awsu i t

1,,affecting the title to or an interest-in property .

See, e .g . ,

Debral Realty, Inc . v . DiChiara , 420 N .E .2d 343 (Mass . 1981) .

5 Petitioner testified that she filed police reports in New

I iJersey because the New York police would not allow her to fil e

police reports since the alleged perpetrators resided in New

''Jersey .

Deductions Claimed for the Highland Lake and Hillside

propertie s

Legal Expenses and Bad Debt Deduction

Petitioner claimed on her 2004 Schedule E . a deduction for

legal expenses of $768 for the Highland Lake property . Sh e

provided a copy of a settlement agreement and a complaint for

another lawsuit that she filed against Ms . Anastasio as

substantiation of her legal expenses . The settlement agreement

provides in pertinent part that Ms . Anastasio will allow

petitioner to remove "clothing, books, shoes, furniture, toys,

and other collectibles" from the Highland Lake property .

.Petitioner concluded that she had suffered a loss for a bad

debt in 2004 and 2005 after she had exhausted all legal avenues

against Ms . Anastasio . She claimed on her 2004 and 2005

Schedules E deductions for bad debts of $18,926 .76 and

$18,328 .62, respectively,-for the Highland Lake property . She

reconstructed her mortgage payments from 1996 to 2000 and for

each of the years 2004 and 2005 deducted as a bad debt 2 years of

mortgage payments as her "basis"yin the Highland Lake property .

Petitioner provided an account statement from FNB for

.February 2 to May 1, 1996, to substantiate her basis . The

account statement shows that three mortgage payments of $777 .67

were drawn from petitioner and Ms . Anastasio's joint account .'

- 8 2.

Theft Loss Deductio n

Petitioner was not compensated by insurance or otherwise fo r

the thefts of her collectibles, and she deducted the purchas e

prices of the items as the amounts of her theft losses .

Petitioner claimed on her 2004 Schedule A a deduction for

theft losses of $12,093 for the Hillside property . Her deduction

for the theft loss relates to coins, paintings, antiques ,

furniture, her library, and appliances . '

Petitioner claimed on her 2005 Schedule A a deduction fo r

theft losses of $18,525 .75 for the Highland Lake property . He r

deduction for the theft loss relates to coins, paintings ,

antiques , furniture,

=II .

her professional

library, and appliances . '

229 East 29th Street (East 29th Street property) New York,

N .Y .

Backgroun d

Petitioner, . Ms . Anastasio, and another coinvestor purchased

the East 29th Street property in 2003 . They paid $3,000 and

(assumed the $21,000 or $27,-0008 debt to which the East 29t h

,,Street property was subject . Ms .,Anastasio and the other

.coinvestor purchased .the East 29th Street property in their name s

6 Petitioner's testimony about the items stolen in eac h

'theft loss was. less than clear .

1 7 Petitioner did not describe the antiques, furniture,

!appliances, and paintings .

Petitioner could not recall the exact amount of the debt .

because, according to petitioner, she was not allowed to purchas e

that property . in her name . . The East 29th Street property is a

co-op apartment that was occupied by tenants . Petitioner, Ms .

Anastasio, and the other coinvestor invested in the East 29th

Street property to obtain the benefits of appreciation and tax

deductions . Petitioner reported rental income received of $2,304

for 2004 and 2005 .

Deductions Claimed for the-East 29th Street Property

Petitioner claimed on each of her 2004 and 2005 Schedules E

deductions for management fees of .$2,652 .06 and property taxes .of

$2,114 .31 for the East 29th Street property . The management . fees

include about $50 per month for maintenance . The property taxes.

include some special assessments that were billed at the end ofeach year . She paid $309 .01 .per month for the management fees,

maintenance fees, and property taxes .9 She made the payments by

checks drawn from her account .

Petitioner provided . carbon copies of checks of $309 .01 for

November 2004 and May 2005 payable to "229 E . 29th St . Owners

Corp ." to substantiate some of her payments . She also provided

copies of bank statements for the period November 2003 t o

9 Ms . Anastasio and/or the other coinvestor'gave petitioner

their portions of the expenses, and petitioner paid the payments

in whole . ; The $309 .01 per ., month ., did not include amounts paid for

additional amounts owed at the end of each year, includin g

amounts paid for special assessments .

November 2004 that show checks of $309 .01 were drawn from her

account .

;;III .

Tighe Avenue (Tighe Ave . property) and Brooksid e

Lots (Brookside property), Newburgh (Newburgh) and Harriman,

N .Y .

Backgroun d

Petitioner` purchased the Tighe Ave . and Brookside properties .

for investment purposes with the intent to develop them .

She

purchased the . Tighe Ave . property_in_2003 .for $500 at an auction .

I he Tighe Ave . property is undeveloped-land . She rented th e

Tighe Ave .,property to-a person who resided at the Tighe Ave .

1 1

rlproperty°:in an "RV" trailer or mobile home . The . record i s

unclear as-to how and when petitioner acquired the Brookside

property . The Brookside property consists of two undevelope d

buildable", and nonadjoining lots in a development . Petitione r

, ;reported rental income received of $1,000 and $1,015 for 2004 an d

2005, respectively .

B .

Deductions Claimed for the Tighe Ave . and Brookside

Propertie s

Petitioner claimed the following deductions for her Tigh e

"Ave . and Brookside properties :

Year

Auto ./ Auto . Cleanin g

Travel Ins . Maint . Supplies Mail Rent

2004 $1,500 .00 $816 .00 -0- -0- -0- -$3,048

2005

1,526 .01 1916 .23 $489 .62 $525 .36 $120 .02 3,16 8

1 Petitioner explained that. her $916 .23 deduction for

automobile insurance was erroneously reported as an other

'interest expense on Schedule E .

11 -

Automobile and Travel Expense s

Petitioner kept a car in Newburgh to travel to, from, or

between her Tighe Ave .

and-Brookside properties - .

for automobile insurance ,

Her deductions

automobile expenses , and travel

expenses are based - on.her actual costs, not mileage . Her actual

costs include amounts she paid for automobile insurance ,

to, from, and between her properties with her car ;

her New York'apartment to-Newburgh,

travel

bus fare from

and taxi farexfor travel

between the Tighe - Ave . or Brookside properties and the taxi stand

at a Newburgh bus stop . She did not keep a mileage log for th e

use of her car, and other than her testimony she did not provide

any written evidence to substantiate her expenditures ..

2 ., Rent'- Expense s

Petitioner deducted payments of $254 per month to Uncle

Bob's Storage as rent, of which she paid $52 per month for the

storage of her car and $202 per month for the storage of office

furniture,'filing cabinets, and°files .10 She moved the office

furniture, filing cabinets, and files from the Hillside'property

to the Newburgh area .

.Petitioner provided copies of account statements'for the

period November 2003 to November 2004 to substantiate her ren t

10 Petitioner' s rent expense increased by $120 in 2005 . It

is unclear from the record how much, if any, of the $120 is

attributable to the storage of her car .

- 12 -

.payments . The account statements show that checks of $254 pe r

month were drawn from her account in,2004 .

Cleaning and Maintenance Expense s

Petitioner paid $489 .62 infcash to a company to cut back an d

clear the Tighe Ave . property because of downed power line s

caused by a storm .

4 .

Supplies and Mail Expense s

Petitioner deducted supplies, expenses of $525 .36 and mail

' ;expenses of $120 .02 for 2005 ., The supplies expenses were-paid in

cash .

,IV .

Other Real Propert y

Backgroun d

Petitioner and a coinvestor also invested in other real

property . that they later sold . When the property was purchased ,

it .had a factory located on it that contained gold-spinning

machines from the 1700s to the 1800s . The gold-spinning machine s

1 !,made gold threads for clothing from,spools of gold . Petitioner ,

and the : coinvestor-agreed that petitioner could, remove half o f

the gold-spinning machines before the sale . The coinvestor,

however, locked the property, and petitioner could not remove her

half of the gold-spinning machines . Petitioner filed a lawsui t

against the coinvestor, and while the lawsuit was pending, the

;,gold-spinning machines disappeared from the property . .

- 13 -

Deductions Claimed for the Other Real Property .

Petitioner claimed on her 2005`Schedule A a theft loss .

deduction of $5,000 for the theft of her .gold-spinning machines .

She testified that her gold-spinning machines were worth a lot of

money and that .her basis in them .was $5,000 . She explained that

she deducted only $5,000 because .she was being conservative, and

the fair market value of her gold-spinning machines was

uncertain . . . According to petitioner, the purchase price of the

gold-spinning machines was included in the purchase price of the

real property, but it might .have,been separately listed . She

filed a police report-in New Jersey for,the-theft-, but she was

not compensated by insurance or otherwise for the theft . .

Carryover Losses

Petitioner reported on Schedules E carryover losses of

$1,521 .1311 and $1,521 .2312 for 2004 and 2005, respectively,' that

would carryover to 2005 and 2006 . Respondent disallowed the .

carryover losses in the notice'of deficiency because petitioner

had not provided any-information'to substantiate her expenses .

OPINION

Deductions are a matter of legislative grace, and taxpayers

bear the burden of proving that they Ware entitled to an y

11 $26,521 .13 (claimed Schedule E losses ) - $ 25,000 (sec .

469(i) limitation for individuals) .

12 $26,521 .23 (claimed Schedule E losses ) - $25,000 (sec .

469(1) limitation for individuals) .

- 14 eductions claimed .'3 Rule 142(a) ;

Commissioner , 503 U .S . 79 (1992) ;

INDOPCO, Inc . v .

New Colonial Ice Co . v .

Helvering , 292 U .S . 435 (1934) . In addition, taxpayers bear the

1«4burden of substantiating the amount and purpose of the ite m

4 ;claimed as a deduction .

Hradesky v . Commissioner , 65 T .C . 87, 9 0

!'(1975), affd . per curiam 540 F .2d 821 (5th, Cir . 1976) . Taxpayer s

are also required to maintain records that are sufficient t o

k enable the Commissioner to determine their correct tax liability .

;Sec . 6001 ; sec . 1 .6001-1(a), Income Tax Regs .

When taxpayers establish that they .have incurred . deductibl e

expenses but are unable to substantiate the exact amounts, we can

estimate the deductible amounts, but only if the taxpayers

present sufficient evidence to establish a rational basis fo r

making the estimates . See Cohan v . Commissioner , 39 F .2d 540,

'543-544 (2d Cir . 1930) ;

Vanicek v . Commissioner , 85 T .C . 731,

742-743 (1985) . In estimating the amount allowable, we bear

heavily upon the taxpayer whose inexactitude is of his or her own

making . See Cohan v . Commissioner ,

supra at 544 . We may not use

the Cohan doctrine, however, to estimate expenses covered . by

section 274(d) . See Sanford v . Commissioner , 50 T .C . 823, 82 7

(1968), affd . per curiam 412 F .2d 201 (2d Cir . 1969) ; sec .

13 Petitioner does not claim or show that sec . 7491(a)

applies . Accordingly, she bears the burden of proof . See Rule

;142 (a) .

- .. 1 5

1 .274-5T(a), Temporary Income Tax Regs ., 50 Fed . Reg .-46014 (Nov .

.6,

1985 )

Generally, we find petitioner's testimony and that of her,

witness, Nelson Abrahantel4 (Mr .,Abrahante), honest and credible .

They testified credibly as to the investment purpose of many of

the deductions claimed on : petitioner's returns . For some of

those deductions, petitioner recalled the amounts of her

expenses . Where petitioner's testimony provided a sufficient

basis for the Court to estimate the amounts,of her expenditures,

we have done .so, taking'`account of her inexactitude where

appropriate . Where the . original documents were lost, but where

petitioner . presented credible reconstructions of her expenses, we

have allowed the claimed amounts .1 5

14 Mr . Abrahante is a coinvestor and a former, coworker of

petitioner .

is It is well established that the Court may permit 'a

taxpayer to substantiate deductions through secondary evidence

where the underlying documents have been unintentionally lost or

destroyed .

Boyd v . Commissioner , 122 T .C . 305, 320- .321 (2004) ;

Malinowski v . Commissioner , 71 T .C . 1120, 1125 (1979) ; Furnish v .

Commissioner , T .C . Memo . 2001-286 ; Joseph v . Commissioner , T .C .

Memo . 1997-447 ; Watson v . Commissioner , T. .C ., Memo . 1988-29 .

Moreover, even though Congress imposed heightened substantiation

requirements for certain deductions by enacting sec . 274, the

regulations thereunder allow a taxpayer to substantiate a

deduction by reasonable reconstruction of his or her expenditures

when records are lost through no fault of the taxpayer . Sec .

1 .274-5T(c)(5), Temporary Income Tax Regs ., 50 Fed . Reg . 46022

(Nov . 6, 1985) .

Petitioner testified that Ms . Anastasio took some of her

records and that other records were submitted to other courts i n

(continued . . . )

16 Section 165 and 166 Theft Loss and Bad Debt Deductions

Section 165 ( a) provides that there shall be allowed ..as, a

kkdeduction any loss sustained during the taxable . year and no t

.compensated by insurance or otherwise .

Section 165 ( c) limits the

, ;loss deduction for individuals to losses incurred in a trade o r

business ,

losses incurred in a transaction entered into for

. .,profit, and certain other losses . including those arising from a

theft . Petitioner has the burden of proving that she sustained a

loss during the taxable year . ,

Section 166(a) generally provides that a taxpayer may deduct

a debt that become worthless . during the . taxable year . A bona

!fide debt is a debt that arises from a debtor-creditor

relationship reflecting an enforceable and .unconditiona l

obligation to repay a fixed sum of money . Sec . 1 .166-1(c) ,

Income Tax Regs : The existence of a bona fide debt is a factual

1 1 1

inquiry, and the taxpayer bears the burden of proving that a bona

fide debt existed .

'476, 493

Dixie Dairies Corp . v . Commissioner ,

( 1980) ;, Litton Bus .

Sys ., Inc . v . Commissioner , 61 T .C .

.367, 377 (1973 )

15( . . .continued)

her lawsuits against Ms .

74 T .C .

Anastasio .

17 -

Highland Lake Propert y

As stated supra , petitioner claimed on her 2004 and 2005

Schedules E deductions for bad debts of $18 .,9"26 .76 and

$18,32 .8 .62, respectively, for the-Highland Lake property .

Respondent asserts that to the extent petitioner has

realized a gain or loss on the Highland Lake property,

.the gain

or loss is capital and was incurred uponthe- disposition of the

property in 2001 .or 2002, not during either of the years i n

issue .. Therefore ., according to-respondent,-petitioner is not

entitled to'her deductions for bad debts . `

Petitioner's testimony-on this issue'was less than clear .

She testified that she had'initiated lawsuits against Ms, .

Anastasio, which she later withdrew, and that ownership of the

Highland Lake property was being negotiated as part of a

,settlement . She,also testified, . however, that she was~ .occupyin g

the Hillside property and had exchanged her interest in the

Highland Lake property for Ms . Anastasio's interest in the

Hillside property . But, according to petitioner, Ms . Anastasi o

breached their settlement agreement ; and she initiated another

lawsuit against Ms . Anastasio, which she also withdrew . Sh e

Anastasio

sold the Highland Lake

testified further that Ms

property without . her knowledge in either 2001 or 2002, and she

did not receive any of the proceeds . She explained that she

deducted 2 years of mortgage payments as her basis in the

- 18- Highland Lake property as a bad debt .in 2004 and 2005 after sh e

'exhausted her legal remedies and concluded that she had sustained

r a loss .

Petitioner has not established that a debt owed to her

Ms . Anastasio became worthless during either year in issue or

that she otherwise sustained a loss during either year with

respect to the Highland Lake property . Petitioner's testimony o n

, .,this issue and her records are confused, uncertain, an d

is ambiguous . She has not substantiated a basis in the Highlan d

t . Lake property or in a purported debt owed to her by Ms .

F Anastasio . See secs . 165(b), 166(b) ; . Whitaker v . Commissioner ,

C . Memo . 1988-418 . Consequently,-respondent's disallowance . o f

,the bad debt deductions . claimed in respect of the Highland Lak e

'property is sustained .

Anticrues, Artwork, Coins and Currency Sheets, Libraries ,

Gold-Spinning Machines, Furniture, and Appliance s

As stated supra, petitioner claimed deductions for thef t

losses of $12,093 and $23,525 .7516 for 2004 and 2005,

.respectively . She deducted her bases and not the fair market

values of her artwork, coins and currency sheets, libraries,

gold-spinning machines, furniture, and appliances as the amount

of her theft losses .

16 As stated supra, $18,525 .75 is attributable to the theft

of her coins, paintings , antiques , . furniture, her professional

library, and appliances , while $5,000 is attributable to the

!theft of her gold-spinning machines .

- 19 Petitioner has not substantiated the items'-fair market

values immediately before the alleged theft . See secs . 1 .1657(b)(1), 1 .165-8(c), Income Tax Regs . (in the case of property

held for personal use the . amount of the theft loss is the lesser

of the property's fair market value immediately before the theft

or its adjusted basis) .

She also has not substantiated the

items' bases ., See Hubert Enters ., Inc . v . Commissioner , T .C .

Memo . 2008-46 (the basis of property, under section 1012, is

generally defined as,cost and that cost is adjusted pursuant to

section 1016) ; see also Kikalos v . Commissioner , . T .C . Memo .

1998-92 (it`is settled . that,the_deductible . amount of a theft loss

may not exceed basis), :revd . on other grounds 190 F .3d 791 (7th

Cir . 1999) . Neither the items' fair market values nor their

bases can be determined from the record with any degree o f

certainty . Therefore,

we cannot apply the Cohan rule t o

determine a reasonable allowance for the theft losses .

Consequently, petitioner is not entitled to her claimed theft

losses, and respondent's determinations in .that respect ar e

sustained .

II .

Section 212 Expense s

Section 212 allows,an individual to deduct all of the

ordinary and necessary expenses paid or incurred : (1) For the

production of income ; (2) for management, conservation, or

maintenance of property held for the production of,income ; or

20 -

}

(3) in connection with the determination, collection, or refun d

a tax .

Legal Expense s

We apply the origin of the claim test to determine whether

!taxpayer' s legal expenses are personal, for the .production o f

income, or capital . The ascertainment of a claim's origin an d

;character is a factual determination that must be made on th e

' .'basis of the facts and circumstances .of the litigation .

Unite d

States v . Gilmore , 372 U .S . 39, 47-49 (1963) . The most importan t

!factor to consider is the circumstances out of which th e

;litigation arose .

Boagni v . Commissioner , 59 T .C . 708 (1973) .

Petitioner testified that she initiated the lawsuit agains t

Ms . Anastasio because Ms . Anastasio breached a settlement

agreement allowing, petitioner to remove "clothing, books, shoes,

furniture, toys, and other collectibles" from the Highland Lake

property .

Petitioner has not established that her claim against Ms .

Anastasio, out of which her legal expenses arose, has its origi n

in a profit-seeking activity as distinct from a personal one .

' Petitioner, . therefore, is not entitled to her-claimed deductions

If or legal expenses, and respondent's determination, in tha t

t ;respect, is sustained .

- 21 -

Management Fees and Property Taxe s

Petitioner .credibly testified about the amounts-of and the

purposes for her deductions for-management fees and property

taxes for 2004 and 2005 for the 229 East 29th Street property .

She also provided'-additional` substantiation for some of her 2004

payments with copies of her account statements and carbon copies

of checks . Petitioner is entitled to her claimed deductions-for

management fees- :of. .$2,652 .06 and property taxes of-$2,114 .31 for

2004'and 2005 .

-C .

Cleaning and Maintenance' Expense s

2Petitioner credibly testified•-that she paid $489 .62 in 200 5

to a company to cut back and clear the Tighe Ave .' . property

because of downed power lines caused by a"storm . Petitioner is

entitled to her claimed deduction for cleaning and maintenanc e

expenses of $489 .62 for 2005 .

D . .-

Supplies and Mail Expense s

Petitioner credibly testified that she paid $525 .36 for

supplies expenses and $120 .02 for mail expenses in 2005 for the

Tighe Ave and Brookside properties . Petitioner is entitled to

her-claimed deductions for,supplies,and'mail expenses .

E .-

Rent Expense s

Petitioner credibly testified that sherpaid about $202 per

month in' 2004 and 2005 for the cost of storing office furniture,

filing cabinets, and files (we discuss the storage of her car

- 22 -

infra ) . She also provided additional-substantiation for some o f

I~'iher 2004 payments with copies of her account statements .

Petitioner is entitled to deductions of $202-per month for ren t

,expenses for 2004 and 2005 .17

III .

Section- 212 Expenses Subject to Section 274 .

In addition to satisfying the criteria for deductibilit y

under section,212, certain expenses must also satisfy the stric t

substantiation requirements of section 274(d) . Section 274(d )

and section 1 .274-5T(a), (b)(2), and (6), Temporary Income .Tax

Regs ., 50 Fed . Reg . 46014, 46016 (Nov . 6, 1985), provide that n o

deduction or,credit shall be allowed for travel .or automobil e

expenses unless the taxpayer substantiates his or her expenses

,with adequate' records or other corroborating evidence .

Travel Expense s

For travel away from home expenses, section 274(d) and the

regulations thereunder require the taxpayer to substantiate :

(1) The amount of each expenditure ; (2) the time of the travel ;

(3) the place of the travel ; and (4) the business purpose of th e

travel . Sec . 1 .274-5T (b)(2), Temporary Income Tax Regs .,

supra .

As stated supra , petitioner's travel expenses include her

;(

actual costs of travel by taxi between her properties and a tax i

stand and travel by bus to . Newburgh . It is unclear from th e

irecord whether petitioner 's travel to Newburgh was travel awa y

17 See supra note 10 .

23 from home--that is,,overnight trips 'in which the exigencies of

her investment activity required"her to sleep or rest before

returning home . . See United States v .'Correll , 389 U .S . 299

(1967) . ;

Lackey v . Commissioner , T .C . Memo : 1977-213 ;